By Nathalie Voit
Household spending in September decelerated, and personal income fell as inflationary pressures, ongoing supply shortages, COVID-19, and the end of government unemployment aid limited consumer spending last month, data from the Commerce Department released Oct. 29 revealed.
Consumer spending in September rose 0.6 percent, down from the 1.0 percent monthly increase recorded in August, the Commerce Department reported Friday.
As pandemic-related assistance programs expired in early September, personal incomes fell 1.0 percent last month, or $216.2 billion. According to the Commerce Department, the 0.7% rise in private wages and benefits was not enough to offset a 72% decline in unemployment insurance claims.
Last month saw a surge in new COVID-19 cases, with some areas in the country topping 7,000 new infections per day in the middle of September. The country is now recovering from the Delta-driven coronavirus surge that sent hospitalization rates in some states skyrocketing.
In addition to last month’s dangerous Delta wave, consumer spending in September also suffered from lower inventory and higher prices on goods due to ongoing supply-chain snarls. In tandem with the end of federal pandemic aid at the beginning of September, the combination of all those dynamics came together to reduce household spending and force Americans to rely on their savings.
Compared to August, consumers’ personal savings rate, or the share of disposable personal income unused each month, decreased to 7.5 percent from 9.2 percent. September’s personal savings rate is nearer to pre-pandemic levels, reported The Wall Street Journal.
Friday’s Commerce Department report arrived amid ongoing inflationary pressures that have prompted recent action by the Federal Reserve. At the same time, average wages have gone up, but rapid price increases on a host of goods and services threaten to offset workers’ gains and cut consumers’ purchasing power.
Economists are counting on the holiday shopping season to spur Americans into spending. Combined with a decreasing COVID-19 caseload, the spending slowdown is expected to abate heading into November.
“It’s a temporary pause in what’s otherwise a very robust spending outlook,” said Joe Brusuelas, chief economist at RSM US LLC.
The economic outlook for the fourth quarter is expected to rebound to 5.2 percent, up from 3.5 percent in the third quarter, according to real GDP estimates from The Conference Board. Annual growth for the year is forecast between 5.3 to 5.7 percent, depending on which economic outlook one consults.
“The trajectory of the virus this fall and winter, inflation, and fiscal policy are the most significant unknowns to consider during the upcoming six months,” said Scott Thacker, Foundation Chair and Chief Executive Officer of Ivory Consulting Corporation. “Fortunately, the overall outlook portrayed in the Q4 update is more optimistic than it was a year ago. Businesses continue to invest despite supply chain issues and labor shortages.”
